Merrill Pulls Back from Mortgage Partner PHH

Merrill Lynch is cutting ties to its longtime residential mortgage loan partner, PHH, which had at times been a source of annoyance for some brokers.

In a long-expected move that ties Merrill even closer to its parent, Bank of America Corp, the firm as of April 25 will originate “certain mortgage loan products” directly, affecting about 20% of loans originated by PHH, according to a statement by the mortgage company.

Merrill also plans to bring in-house servicing on its $40 billion of outstanding residential mortgage loans in-house by yearend when its servicing contract expires, said PHH, a publicly traded company whose shares fell over 17% on the news.

Merrill Home Loans represents almost one-third of PHH’s servicing portfolio. Merrill also may increase the loan originations it is taking in-house as the year progresses, PHH said.

A Bank of America spokesman declined to comment on what he called “vendor relationships.”

The switch will not affect how brokers are paid on loans, according to a source at the firm.

For years, many brokers complained about the quality of PHH’s servicing, which they said angered some clients, but performance has improved.

Bank of America executives moved slowly to bring the business in house as they balanced the embarrassment of using a third-party provider against the securitization business that PHH provided to the bank, said one Merrill veteran who recently left the company.

According to the , Merrill accounted for 32% of its sub-servicing portfolio at yearend 2015 and about 26% of its total 2015 origination volume.

The company also is on tenterhooks over its relationships with Morgan Stanley Private Bank, which coordinates loan volume for that firm’s almost 16,000 brokers. Morgan Stanley accounted for 20% of PHH’s loan closing dollar volume but told the company that it is “assessing” whether to continue the arrangement when its contract ends on Oct. 31, 2017.

“Mortgages remain a priority for Morgan Stanley Private Bank NA and the origination process will remain unchanged,” a bank spokeswoman said. “We are committed to investing in and growing this important product line for our clients and Financial Advisors.”

Merrill Lynch’s contract did not expire until March 2018, but it exercised its right to cancel after giving 180 days’ notice, according to a regulatory filing earlier this year from PHH.

PHH president and CEO Glen Messina said in a statement that he was “disappointed” with the changes.